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tv   Bloomberg Bottom Line  Bloomberg  January 2, 2015 2:00pm-3:01pm EST

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♪ >> from bloomberg world headquarters in new york, i am pimm fox, in for mark crumpton. this is "bottom line" the intersection of business and economics with a mainstream perspective. to all our viewers in the united states and those joining us from around the world, welcome. we have full coverage of stocks and stories making headlines today. the latest on the tango of argentina and the hedge funds that took the country to court. yang yang joins us about urgent care clinics.
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and shall be holiday buckles and and scans the dashboard of huber, the taxi -- uber the taxi transport company. president obama has just signed in order authorizing additional sanctions against north korea. the word comes as sony expands the number of ways you can watch its movie "the interview." theatrical -- it is expanding, and time warner and verizon expanded access to the movie. north korea has denied responsibility for the hacking and threats to theaters that screened the fictional comedy about the assassination of its leader. let's review other top stories. stocks are lower today. the s&p 500 trading down nearly
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nine points. looking at the dow jones industrial average lower 56 points, 0.3%. the nasdaq composite, falling 26 points. oil falling to the lowest level since 2009, down another 1%. $52.66 for a parallel west texas intermediate -- a barrel of west texas intermediate crude. saudi arabia's royal court says king abdullah is being treated for pneumonia. his condition stabilized after doctors inserted a breathing tube. the 90-year-old king is in a military hospital after experiencing shortness of breath. the euro currency hit a 4.5-year low against the dollar weakening to $1.21 after mario draghi hinted large-scale
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quantitative easing may be on the way because of the risk of deflation. bond prices were bi higher -- bid higher in italy and spain. politicians and leaders are remembering former governor mario cuomo, who died yesterday of heart failure. he decided both times against running for president. he was 82. >> he was such a strong believer in whatever it was he was advancing. he would mix it up with people when he thought he had to. she could have been president of the united states. he was that great. >> that is a look at today's top stories. 2014 was the year of the make a deal. comcast -- mega-deal. comcast's proposed deal with time warner cable, for example.
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and another deal -- a combined $100 billion of deals. bloomberg's deals reporter is here with more. what more mega-deals in 2015? >> all of the characteristics that were there in 2014, improving economic confidence the economy rebounding and rising stock valuations. that should continue barring any major geopolitical event or change in industry. >> and being able to borrow money at very low rates? >> yes. as long as that continues, we should see more and more deals. it got a little jittery at the end of 2014, but right now it looks like a go-ahead. >> i mentioned the comcast-time warner cable, halliburton and baker hughes. what characterizes a mega-deal? over $10 billion? >> it is kind of a moving line.
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we see some deals of more than $50 billion like time warner and comcast directv and at&t. but there were also deals over the $10 billion range, and that added to the total volume in 2014. >> we talked about the telecom and cable deal also pharmaceutical companies and energy. are there any sectors that were dormant in 2014 that you expect to have more activity this year? >> we didn't see a lot of energy deals in 2014. there were some but it wasn't a sector that was particularly hot. that's likely to change in 2015 especially with oil prices as low as they are. that's making some companies a lot more vulnerable. and big companies he would never have thought of as takeover target a few months ago are now a lot cheaper. >> the u.s. dollar at a 4.5-year high against the euro.
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does this also mean maybe u.s. companies get to go by things in europe? >> i think so. people we talked to about 2015 m&a are calling for more cross-border transactions. you will not see in versions like in 2014 but there's a lot of cheap companies in europe right now. if you are looking to boost growth there can be opportunities over there. >> european banks have to look at investments because they will have to go through various stress tests. does that mean they have to shed assets? >> european banks? i think there will be m&a in the european financial sector. people talking about the u.k., banks need to consolidate to become these challenger banks. there are opportunities with companies that are weaker and cannot need stress tests, who could find themselves becoming targets. >> what about in asia? china in the past has tried to
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do energy deals in the united states. they own amc the movie theater chain showing in some areas "the interview." more activity from asian buyers? >> asia is not my particular focus but i know they were issues with asian companies in the past buying energy companies. i'm not sure how that will play out. but there is certainly appetite. >> i want to thank you very much. brooke sutherland telling us about deals in 2015. here's a retail story with a healthy twist. going to the mall for shopping? how about getting your physical webbing you are there -- while you are there question mark health care has gone retail, and yang yang is in washington with details. >> as video and bookstores become relics of the past, once-struggling shopping malls have found a cure in doctors and even obamacare. if you have not gone the way of retail health care yourself, you
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are likely still familiar with the concept. walk-in clinics in storefronts staffed with doctors or nurse practitioners to treat common ailments and minor injuries. the cvs pharmacy minute clinic is popular here in d.c. write a jumped on the bandwagon -- rite-aid jumped on the bandwagon in april. there was big growth in the sector, according to the urgent care association of america. the number of walk-in retail clinics in the u.s. was 9400 last year, up 20% since 2009. the trend is explained in large part by the need for more convenient health care services now that more than 10 million people are insured under the affordable care act. but the big an unexpected winner here? shopping malls. not only are once-empty storefronts getting filled with vacancy rates at 7.9% this year, but we have seen an improvement.
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medical tenants pay higher rent, , with good credit and tend to sign longer leases. so this is a rare example of obamacare actually being good for business. >> but what about the walk-in clinics being good for consumers? >> they are big for consumers. i happen to go to one a few times a year because it is so convenient. it is a big plus for people like myself who can't get last-minute appointment with doctors or don't want the hassle of dealing with an emergency room. it is also so much cheaper, which is a big deal here. last year, treating a sore throat would set you back more than $590 in an emergency room. in an urgent care clinic, the bill was only $94. flu treatment is about $128. the same procedures would total over $800 in an er so not only is it a win for patients, for
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insurance companies, but also for shopping malls. >> is this the beginning of the end looking at the cost per square foot of being in the mall's? >> if you want to follow the money more broadly looks like this is the beginning. according to research private equity and venture capitalists have poured more than $3 billion into urgent care clinics in 2010. that is a big bet on retail health care. research suggests the growth in walk-in clinics has not outpaced demand. so as long as obama care is still the law of the land and remote areas don't have enough primary care doctors patients will continue to turn to er's and neighborhood urgent care clinics. >> yang yang joining us from washington, d.c. coming up, will u.s. stocks continue to attract investors? we talked to one strategist who got it right in 2014. that is next. ♪
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>> this is "bottom line" on bloomberg. i'm pimm fox. some money managers got it right, and some got it wrong last year. michael purves of weeden company got it right. great to have you with us. how did you do it? what ended up transpiring? >> my price target was 2100 by the end of the year. we stayed at that level on new year's day. my eps call was below consensus if you look at the bloomberg consensus forecast. so i was not a wild bull on the economy on earnings. that earnings would be a nice single digit drive of 6% or 70% -- 7%. that's what looks like what will happen. the unusual that i made was for expansion this year. >> tell us what that means.
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paying more for the same dollar of earnings. >> exactly. the price ratio of the s&p. >> why would you pay more for the same thing? >> there's a few reasons. one of which, you certainly had cash on the sidelines that was steadily creeping and. after the trauma of 2008 and 2009, and a relapse in 2011 with crazy volatility it takes a while for stability to come back not just into the economy, but the market overall. so we started the year with sort of an average multiple right on top of 30 or 40-year averages. >> we are talking about 15, 16? >> now we're up to 17. >> anything wrong with that? >> people like to say that's a little too much but you have to look at the context of interest rates, what's happening overall. you can make strong arguments
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for 21 times earnings, and we have seen that in the early 1960's during a time of very low inflation. >> what does your work tell you about 2015? >> more of the same. we will see price-earnings multiples continue to expand. we will see another decent, not great, year in earnings. this goldilocks has been recharged. low interest rates a study grind in gdp and earnings. >> 5% for the third quarter stronger u.s. dollar -- >> stronger u.s. dollar. share buybacks will be a dominant thing this year. >> let me ask about share buybacks. that is simple math. the same number of investors putting the same amount of money into the market and you have fewer shares the price is going to go up. it will reflect a higher price. >> sure. synthetic earnings growth is
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what it is, but it works. >> you can say that to any company that ever bought back shares. >> you can debate whether it is questionable for a company to do but in terms of increasing earnings-per-share usually the math will work. the math gets harder with higher valuations. companies are issuing debt to buy back stock. that is the risk factor. >> but those companies include corporations such as apple. >> sure. >> and they say we have lots of cash but why spend the cash when you can issue debt? the interest rate on the debt are deductible from corporate profits, so in effect you have taxpayer subsidizing the purchase. >> the question is do you want to does dividend the cash out instead as a way to return cash to shareholders? we will let them debate that. meanwhile for stock buybacks are on the table for 2015. >> any specific industry groups
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that will do better than others? >> right now, utilities for example, a little bit of a sideline sector. a huge at performer this year. -- outperformer this year. >> the dow utilities was at a new high in december. >> a massive outperformance. partly because of lower interest rates, certainly lower fuel input costs. there's a lot of financial leverage in there. that is a sector to be careful on if we get moves in interest rates. when you look at market multiples creeping higher, you have to be mindful that value stocks will get bid. this year we saw value tech solid names, microsoft and such outperformers. this year that theme will play out, but maybe with different
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sectors. >> value energy? >> once there is some stability returning to that sector, you can pick up high-quality energy names at much lower multiples than in the past. but that's not going to happen until we see this very dramatic move in oil start to stabilize setting the stage for value stockpicking. >> thank you very much and congratulations on last year's call. well done. michael purves chief global strategist for weeden and company. up next, lisa abramowicz joins with an update on the first trading day of 2015. later on a second term for brazilian president dilma rousseff began yesterday. willem marx will explain how the government will cut pensions, battle inflation, and deal with a corporate scandal. all in today's latin america report. ♪
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>> this is "bottom line" on bloomberg. new year's eve means so much to so many, so was it in an uber night for uber? search pricing and the state of uber. >> uber delivered two million rides, in line with expectations and 10 times higher than last year. >> two million rides? >> it was their biggest night ever. also, at peak they were dropping off 50 trips a second. after midnight, more than 28,000 people download the app.
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it was not as that giving rides. it was but gaining customers. it was all over the world. what we learned from this paris parties the hardest. that blue line is paris after 4:00 a.m. other cities, new york, san francisco, sydney search pricing was around 2:00 a.m. overall, a great night for uber. they do deliver the 2 million rides they were hoping for. whether they hit $100 million in revenue that night, we don't know. >> so two if we say -- if we say two million rides, explain what surge pricing means. >> it is when there is so much demand that you don't pay the typical price for cooper -- uber, you pay two or four times as much. but uber said only 25% of new
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year's eve rides fell into that search. -- surge. some people said they can't win because you are promising drivers a lot of money and customers don't want to pay a lot of money. but this data illustrates, a tremendous year for ubert. they started off 2014 in 30 countries valued at $3.5 billion. 12 months later, they are in more than 50 countries and worth, valued at more than $40 billion. rapid growth. this company is only five years old. >> so they had in an uber year. did they make a lot more money because of surge pricing or does that money go to the drivers? >> is a private company, so they don't disclose all that information. but it is rumored they keep 20%
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of revenue. not bad for a night with two million rides. >> we will have to check in with you and get the details. thanks very much. it is 26 minutes past the hour. time for bloomberg "on the markets." >> let's get you caught up with where stocks are trading. all three major indices are down on weaker manufacturing data. one individual mover is weight watchers. even as new year's resolutions promise to bring people looking to shed pounds, shares tumbled as much as 15%. investors are not impressed with their moves. with all the new apps promising to tell you how to lose weight and tell you how many sets to take it is contribute into falling sales. i am lisa abramowicz. i will be back with another update in less than 30 minutes. more "bottom line" after a quick
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break. ♪
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>> this is the second half of "bottom line" here on bloomberg. i am pimm fox, in for mark crumpton. when it comes to commercial real estate, ditch new york and washington d.c. he is on the road to places like houston, austin, and dallas-fort worth for bargains. thanks for being here. happy new year. let's talk about real estate and the idea that it is a little too expensive for businesses to locate in places like new york
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and washington, d.c. >> not terrible for investors, but prices have gotten high. investors are looking at places like houston and denver and raleigh-durham. >> what qualifies as high when you talk about real estate prices per square foot? >> it really depends on your yield expectation and you're holding period. when you get into thousands of dollars per square foot, for apartments or office buildings, investors look at the cost. do i really want to hold as long enough to get the return i want? houston is less expensive, you'll is better employment is better, the demographics look better. >> so you say houston, places like dallas and austin. does it have anything to do with the oil business? >> there is definitely a correlation. if you look at the gross metropolitan product of places like houston boy was driving that. but that economy is very diverse -- oil was driving that. but the economy is very diverse.
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one thing that you love is economic diversity. houston is interesting for a lot of reasons. >> if you wanted to relocate to houston, what number should you look like for costs? >> on a square foot basis? you have rents in the teens and the 20's. a place like new york city or london or washington, d.c. rent is two or three times that. it depends on the business and what expectations are for the long-term. there is an exit strategy if you are in houston because other investors like it. in the past, markets like that did not have depth. >> we talked about houston, austin, and dallas. what about other areas like phoenix? >> phoenix is great. boomers like it. millenials like it. phoenix used to be thought of as a retirement community. but now there is job growth two there. >> what about charlotte?
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>> all about the financial services industry coming back. you have two or three financial services powerhouses there. one of the things we saw this year in real estate, the jobs are chasing people not the other way around. >> so people have to find affordable places to live, and the jobs go there. >> or they go to school there they like it there they find jobs there. employers are going where the people are. more employers come because the people are there. >> is there a commercial real estate market right now that has been left for dead that is just not attracting attention but we will be talking about it maybe this year? >> detroit. what's interesting, in the survey we do -- last year we surveyed 51 cities and detroit was number 51. this year we increased to 75 cities and detroit is in the 30's, right in the middle.
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>> is it expensive to be in detroit? >> you can buy for significantly less than replacement cost. there are startups in detroit because the cost of doing business is so low and rents are so low. startups are going where there is cheap operating cost. detroit is a city i would look at. >> and you have the university of michigan and a lot of educational institutions. tell me about residential real estate for a second. there is that equation, rent versus buy. >> rent. when vacancy rates are around 4% year over year and rent growth is in some markets double digits renters are getting priced out of the market. in some markets, like in atlanta, it is cheaper to buy then to rent. >> what about atlanta for real estate? >> what's interesting about atlanta, everybody is focused on the downturn downtown, but if you look at the geography of the
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land there's many places in the suburbs that are really interesting. so atlanta is becoming a very hot market. >> if we go to places like miami, i have to assume the residential market, the commercial market is strong? >> miami is on fire. you have the condominium market that tanked right after the financial crisis and lou back up again blew back up again. they like the condominium side of thing. not just investors. when you have a lot of investors in a market, that doesn't look like it is durable. but you have businesses relocating down there. it is popular with millenial's. when we think of florida we think of retirees. let's not rule out retirees in the workforce, getting operating leverage with part-time retirees as part of your workforce. >> how about what we call "regional cities," second-tier
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cities that may have been off the map. are they getting more attention? >> that's why we increase our survey to 75 cities. the smaller cities like the east bay in san francisco, palo alto and san jose. also columbus ohio. columbus, ohio is a big retail area. very cold version of austin texas. because you have the university. kids graduate from school, and there's employment opportunities. >> so we have to think of columbus, detroit, and even phoenix? >> and denver. >> thanks very much. the head of real estate practice at peter vesey -- pwc. coming up, today's latin america report. a new chance for argentina could -- to come back to the debt
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market? details ahead on "bottom line." ♪
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>> this is "bottom line" on bloomberg television and streaming on your tablet, your phone and of course at time for today's latin america report. president dilma rousseff officially began her second term as president of brazil yesterday, as the largest economy in latin america, whatever happens to brazil matters. willem marx followed the election battle, and joins us for more. let's start out with the challenges president rouseff faces in his second term. collect the big challenge for her will be the economy. there has been a great deal of inflation. it is difficult for ordinary people in brazil to keep up with price increases without seeing higher wages. she will have to win over the support of a lot of people outside of her normal pace. it was a quite narrow victory she juan the election by, 3%.
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on top of that, there's a huge corruption scandal brewing with the state energy company petrobras. >> has she given any indication about how she will cut pension payments from the government, at the same time that inflation is rising? >> one challenge will be getting anything past congress. a lot of people in her party are embroiled in the petrobras scandal. she last some seats -- lost some seats. any bill to tries to pass will be a challenge. >> petrobras is the center of the scandal. it's relationship with the brazilian government is what? >> dilma rousseff was from 2003 to 2010 chairman of the board, chairwoman of the board, i should say. she had no involvement in any of the kickback schemes the huge
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allegations of around $100 million of kickback schemes involving petrobras and some of the country's largest contraction -- construction firms. a lot of people say funds were allegedly being funnelled to politicians in order to get business for their firm. >> she will have challenges, political as well as economic. thanks for a much, willem marx. a new year might mean a new deal between argentina and hedge funds led by paul singer? perhaps argentina can return to the debt markets. a rule that expired on new year's day would require better terms for some of argentina's bondholders. to explain all of this, our latin america reporter. thanks for being here. what was the old rule that expired january 1? >> there was a rule in the bond
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contracts basically an incentive scheme to get people into restructuring. it said we promise if you go into restructuring, we will give better terms than the ones we are giving you right now. the rule expires december 31. this rule it is what the government has set throughout the entire debt debacle, why they can't negotiate with the holdouts and resolve this second default they were put into in july. >> now the president of argentina can actually do some kind of negotiation with paul singer and the hedge fund investors? >> she can if she wants to. but the thing is, nobody expects her to. government officials have said it was a legal impediment, but it doesn't really mean we are going to give in. it is a national pride issue. they can say, we don't want to be extorted by these guys. that's what they say the whole thing is, extortion. >> what is the economy in
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argentina like? you wrote about how they have not accessed capital markets since what 2001? >> and they definitely need to. if the numbers are what they want them to the if numbers show the economy is holding steady and things are not getting worse, maybe they don't have the incentive to come to the table, and they will pass the buck to the next administration in 2016. that's what most people are expecting at this point. it will be steady from here till 2016 if things don't get worse. if you want somebody to happen this year, you want to see pressure from the economy. >> what about passing the buck when it comes to the court case between paul singer and the hedge funds holding the debt and the government of argentina? >> exactly right. this whole court case basically the court case says that until a deal is struck between hedge funds and argentina, they cannot make debt payments.
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so people holding the bonds cannot get that payments into a deal is struck. will a deal be struck this year or next year? >> is a leverage the court can apply? we got rulings and the government of argentina said were not interested. >> elliott said they will pursue sanctions, and it has not been news on that front. maybe export or import. we're not sure yet. but definitely maybe we will see some this year. but as for now, the court can only act on what elliott tries to pursue. >> talking to willem marx about the economy in brazil, what is it like for an ordinary consumer in argentina right now? our jobs plentiful? can they get access to credit? >> interest rates are negative in argentina, because inflation is tremendously high, about 30%. >> so nobody wants to put money in the bank. >> if you want to borrow in
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argentina, you can. but why would you want to borrow in pesos when the peso is seen to be severely overvalued? >> hence the idea that when you do big transactions in argentina, they are typically done with u.s. cash? >> exactly. they have been trying to pacify the economy bit by bit but people don't trust the peso. everything is done under the table. >> thank you for sharing your thoughts with us. that is it for our latin america report. coming up on "bottom line," a look at what is to come in the first week of 2015. the full week, we mean. details next. ♪
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>> now to the "bottom line" for next week. yang yang joins us with a preview. business as usual, now that the holidays are over? >> it is definitely back to business. there are some newsworthy events to get us going in the first full week of the year. the long-awaited boston marathon bombing trial begins with jury selection on monday. 21-year-old dzhokhar tsarnaev faces possible execution is convicted in the 2013 attack that killed three people and injured 250. on tuesday, president obama meets with mexican president and recap and you tell at the white house -- enrique pena nieto.
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and the congress convenes. new senate majority leader mitch mcconnell says his chamber's first order of business will be to vote on approving the controversial keystone xl pipeline project. and while a new congress is well and good i'm most looking forward to the consumer electronics show in las vegas, tuesday through friday. on wednesday, we will finally get to see into the potentially game changing that meeting from a few weeks back. the federal reserve will release minutes from the federal open market committee meetings on december 16 and 17. remember, it was at that meeting that policymakers said it would be "patient" on the timing of an increase replacing earlier language to keep borrowing costs low for a considerable time. we will be pouring through those minutes looking for next week
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when i be huge for earnings, but we will hear from monsanto constellation brands bed bath & beyond, and the container store throughout the week. >> the week culminates with the december job report, right? friday on the ninth. >> it is a big one. the last jobs report of 2014. according to a survey of bloomberg economists the u.s. and implement rate will likely drop to 5.7%. employers added an estimated 243,000 jobs in december, capping off the strongest year of payroll growth since 1999. hopefully starting the year on a high note. back to you. >> thanks very much. another check of the market movers is coming up. more "bottom line" next. ♪
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thanks for catching "bottom line." i'm pimm fox. ♪ >> bloomberg television is "on the markets." let's get you caught up with where stocks are trading. all three major indexes down on weaker than expected manufacturing data. let's move on to tech stocks. companies are poised to spend more than $21 billion in 2015 to harness the burgeoning volume and friday of data being converted at a faster speed. we will take a look at the favorite picks. daniel ives welcome. thank you so much for coming in. so top three picks, what are they? >> first, microsoft on the large cap side. love what they are doing on the cloud and in mobile. it is just the tip of the iceberg for what will happen in 2015.
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specifically, the windows 10 upgrade cycle. there's a lot more fuel in the engine for microsoft. palo alto remains a top favorite in cyber security. they are the end to end next generation platform player that could be the winner. also a good 2014. we see center security and enterprise and government, they see a surge of spending. that's the one that will see a lot of benefits from i.t. budgets. then you go to big data. that's where i look at companies at the convergence of big data and cyber security. an under looked stock. you could see expansion as they play into the big data trend. >> the question a lot of people have, our tech stocks in a bubble? we saw tremendous gains last year. 19% in the tech index. what do you think? >> i covered tech from 2000 to
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today. there is more meat on the bone, relative to the actual fundamentals. it is a paradigm shift in terms of the cloud and cyber security. investors have to be careful. i think you have to pick the winners, pick the subsectors. that's right big data, cyber security, and cloud are where we are putting our money in 2015. >> what names do you think will be big losers? >> the more mature companies that continue to struggle, like sap struggled. they will continue to have to do acquisitions. symantec on the cyber security side. there on the wrong end. we are not as bullish on them. we would want to own the next 10 players like palo alto. you go to big data, you have
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verint. microsoft and nadella, they have distillates themselves from ibm, oracle, hewlett-packard. that's a good plan for 2015. >> thank you so much for being with us, daniel ives of fbr capital markets. "street smart" is next. ♪
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♪ >> good afternoon, and welcome to the most important hour of the session. there are 60 minutes left. i'm erik schatzker, along with betty liu today on "street smart." 2015 resuming where 2014 left off -- more pain for black gold. oil fallen to the lowest level since 2009. >> and, ecb president mario draghi sending a strong message to the market. could ecb be on the verge of an aggressive stimulus package? quantitative easing, we are breaking down the options. >> and how big of a knighted huber -- night date uber


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